First Ever Interim Dividends Likely Among 4 Major Financial Holding Companies... "Dividend Restrictions to Be Lifted" (Comprehensive)

4 Major Financial Holding Companies Smoothly Pass Financial Supervisory Authority's 'Financial Soundness Evaluation'
Final Decision at Financial Services Commission Regular Meeting... Plan for Normalizing Voluntary Dividends

[Asia Economy Reporter Kwangho Lee] Ahead of the expiration of the financial authorities' dividend payout ratio restriction on the 30th of this month, interim dividends from the four major financial holding companies?KB, Shinhan, Hana, and Woori Financial Groups?are expected. If finalized, this will be the first case where all four major holding companies pay interim dividends. It is also reported that the financial authorities concluded there are no issues in lifting the dividend payout ratio restrictions based on the stress tests (financial soundness evaluations) conducted on these companies.

According to financial authorities and the financial sector on the 23rd, the financial authorities' policy regarding capital management recommendations for banks and financial holding companies in response to COVID-19 will be announced on the 25th. The Financial Services Commission plans to make a final decision at the regular meeting scheduled for the afternoon of the 24th.

In January, the financial authorities recommended limiting dividends of banks and financial holding companies to within 20% of net profits until the 30th of this month to prepare for the possibility of a prolonged COVID-19 pandemic and to strengthen banks' capital capacity. However, as the global economy recovers and strong performance is expected in the second quarter following the first quarter, the financial authorities collected related data until the 11th and conducted stress tests on eight financial holding companies and 19 banks.

The stress test involved the financial authorities providing scenarios assuming changes in macroeconomic indicators such as stock prices, exchange rates, and interest rates. Each financial company conducted its own tests on the impact on credit assets, capital ratios (BIS ratios), loan loss provisions, interest income and expenses, and net profits, then submitted the results.

The stress test scenario assumed a 'V-shaped' fluctuation in the domestic economy. A V-shape refers to a scenario where the domestic economy enters a short-term recession phase followed by a sharp rebound. While most financial holding companies failed the stress test under the long-term recession 'L-shaped' scenario, they passed under the long-term recovery 'U-shaped' scenario, indicating that this test was generally passed without issues.

Once the financial authorities' dividend restriction measures end, financial holding companies plan to actively pursue shareholder return policies. They have previously expressed intentions to actively engage in interim dividends and other measures to boost stock prices.

Four Major Financial Holding Companies "Will Actively Pursue Shareholder Return Policies"

Hana Financial Group announced on the 15th that the record date for the shareholder registry closure is the 30th. Typically, closing the shareholder registry is interpreted as a preliminary step for dividends. Hana Financial Group has paid interim dividends every year except in 2005 and 2009, during the global financial crisis.

According to FnGuide, Hana Financial Group's consensus profit for the first half of this year is 1.6442 trillion KRW. Even the lower estimate is 1.5427 trillion KRW, surpassing Hana Financial Group's highest half-year net profit of 1.5162 trillion KRW in the first half of 2012. With expectations of achieving the highest half-year performance ever, there are predictions that the dividend per share will exceed the previous highest amount of 500 KRW. Hana Financial Group's interim dividend payout ratio increased from 5.9% in 2015 to 10.8% last year, and it is likely to exceed 11% in the first half of this year.

Shinhan Financial Group also has a strong shareholder return intention from its board of directors and plans to expand cash dividends and pay interim dividends depending on the financial authorities' decision. According to its articles of incorporation, Shinhan Financial Group can autonomously decide dividends through board discussions without closing the shareholder registry when paying interim dividends. To this end, the articles of incorporation were amended at the shareholders' meeting in March.

At that time, Shinhan Financial Group Chairman Jo Yong-byeong promised, "We will do our best to enhance shareholder value through active shareholder return policies." CFO Vice President Noh Yong-hoon also expressed strong determination, saying, "After the end of the financial authorities' dividend recommendation limit of 20% at the end of June, we plan to actively pay dividends, including those that had low payout ratios. If the payout ratio is not implemented as planned, we definitely plan to continue in the second half." A Shinhan Financial Group official said, "The board's intention for shareholder returns is strong, and a direction will be announced soon."

KB Financial Group has also consistently expressed its intention to expand the dividend payout ratio. KB Financial Group Chairman Yoon Jong-kyu stated at the recent shareholders' meeting, "It is a consistent view that the dividend payout ratio should be 30%," and added, "We will actively consider implementation depending on the situation."

Woori Financial Group converted 4 trillion KRW of capital reserves into retained earnings to secure dividend resources. Woori Financial Group Chairman Sohn Tae-seung recently mentioned at a corporate briefing for overseas investors, "We will raise the dividend payout ratio to 30% by 2023," and "Once the COVID-19 situation stabilizes, we will pursue various shareholder return policies."

'Interim Dividends' Should Be Decided by Comprehensive Judgment of Short- and Long-Term Impacts

Kwon Heung-jin, a research fellow at the Korea Institute of Finance, advised, "The financial authorities need to consider easing dividend restrictions comprehensively by taking into account the results of the stress test re-execution and the competitiveness of domestic banking groups. Banks should also consider that simple high dividends alone will not gain investor trust or enhance competitiveness, so even if dividend restrictions are eased, decisions should be made by comprehensively judging short- and long-term impacts."

A financial authority official refrained from commenting, saying, "The final decision is expected after the regular meeting report tomorrow."

This content was produced with the assistance of AI translation services.